Correlation Between Financial Institutions and First Bancorp

Can any of the company-specific risk be diversified away by investing in both Financial Institutions and First Bancorp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Financial Institutions and First Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Financial Institutions and First Bancorp, you can compare the effects of market volatilities on Financial Institutions and First Bancorp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Financial Institutions with a short position of First Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Institutions and First Bancorp.

Diversification Opportunities for Financial Institutions and First Bancorp

0.78

Correlation Coefficient

Financial Institutions  First Bancorp

Poor diversification

The 3 months correlation between Financial and First is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Financial Institutions and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and Financial Institutions is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Financial Institutions are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of Financial Institutions i.e., Financial Institutions and First Bancorp go up and down completely randomly.

Pair Corralation between Financial Institutions and First Bancorp

Given the investment horizon of 90 days Financial Institutions is expected to generate 1.82 times less return on investment than First Bancorp. But when comparing it to its historical volatility, Financial Institutions is 1.14 times less risky than First Bancorp. It trades about 0.06 of its potential returns per unit of risk. First Bancorp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,425  in First Bancorp on May 26, 2025 and sell it today you would earn a total of  281.00  from holding First Bancorp or generate 11.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Financial Institutions  vs.  First Bancorp

Financial Institutions

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Institutions are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Financial Institutions may actually be approaching a critical reversion point that can send shares even higher in September 2025.

First Bancorp

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Financial Institutions and First Bancorp

The main advantage of trading using opposite Financial Institutions and First Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Institutions position performs unexpectedly, First Bancorp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First Bancorp will offset losses from the drop in First Bancorp's long position.

The idea behind Financial Institutions and First Bancorp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Volatility Analysis module to get historical volatility and risk analysis based on latest market data.